Dollar Threat: China Selling Yuan Bonds For The First Time

In yet another step to internationalize the yuan as a global currency, China will be selling yuan-denominated bonds on the international market for the first time.

This could be a new option for fixed-income investors, including central banks, who want to diversify away from the dollar.

AP: The 6 billion yuan ($876 million) bond sale is slated for Sept. 28, the ministry said. Hong Kong is Chinese territory but has its own currency and regulatory system and often is used by Chinese companies to deal with foreign investors.

The yuan, also known as the renminbi, or people’s money, does not trade on global markets despite China’s huge foreign trade, but Beijing is gradually expanding its use abroad.

It will be interesting to see what yield these bonds end up offering, and if central banks bite.

Given the consensus view that the yuan is artificially undervalued versus the dollar, longer-term Chinese bonds are likely to be appealing for their currency appreciation potential, in addition to their interest income. We expect a strong a response.